Private mortgage insurance - PMI - is added to most conventional loans when the borrower buys a home with less than 20 percent down. It protects the lender, not the borrower, and it is charged every month. The good news is that PMI is not permanent. As the loan balance falls and the home's value holds or rises, the premium can usually be removed. Here are the steps, in order.
Step 1: Work out your current loan-to-value ratio
The key number is your loan-to-value ratio (LTV): your current loan balance divided by your home's current value. Borrowers can generally request PMI removal when the LTV reaches 80 percent, and on many loans PMI terminates automatically at 78 percent based on the original amortization schedule. If you put 10 percent down and your home has appreciated since purchase, your current LTV may already be under 80 percent - but it is the current value, not your purchase price, that decides, which is where an appraisal comes in.
Step 2: Contact your loan servicer before ordering anything
Call the company that services your loan and ask two questions: what does my loan require for PMI removal, and how must the appraisal be ordered? Servicers' requirements differ. Many require the appraisal to be ordered through the servicer's own process and performed by an appraiser on their panel; an appraisal you order on your own may not be accepted under some loans' terms. Getting the servicer's instructions first prevents paying for a report the servicer cannot use.
Step 3: Document the home's current value with an appraisal
Where the servicer requires value documentation, a certified appraiser inspects the property, researches recent comparable sales in the neighborhood, and reports a supported opinion of current market value. Improvements since purchase - a renovated kitchen, a finished basement, a new roof - are documented at the inspection, so keep records of significant work. If the appraised value puts your LTV at or below the servicer's threshold, the appraisal is the evidence behind your removal request.
Step 4: Submit the written request and confirm removal
Submit your removal request to the servicer in writing, with the appraisal, and keep copies. Then verify on a following statement that the PMI charge has actually stopped. If the request is denied, the servicer must tell you why - a value that came in short is a common reason, and in that case the paths forward are paying the balance down to the threshold, waiting for further appreciation, or both.
A note on FHA loans
Mortgage insurance on FHA loans follows different rules. For most FHA loans originated in recent years, the annual mortgage insurance premium runs for the life of the loan or for a set term depending on the original down payment, and removing it generally means refinancing into a conventional loan rather than requesting cancellation. If you have an FHA loan, ask your servicer or a lender which rules apply to your loan before planning around PMI removal.
Talk it through first
If you are in Washington County or Frederick County, Maryland; Berkeley County or Jefferson County, West Virginia, and you are not sure whether your value is likely to support removal, call Sanicola Appraisals, LLC at (240) 217-7778. We are glad to talk through your situation before you spend anything.